General Motors' (GM) recent announcement that it's investing $2 billion in 17 U.S. plants and hiring 4,000 workers signals one thing: massive opportunism. Less than two years ago, when GM was emerging from bankruptcy, it was sounding like the little company that would never go broke again. Slimmed down and optimized to make money in an annual market of only 10 million vehicles sold, it was not your father's mighty GM. These days, however, that may be exactly what it wants to be.
Strike while the iron is hot
GM just posted a healthy first quarter profit of $3.7 billion. It also seems to be ignoring Wall Street, which hasn't boosted its share price much beyond $30 since GM's IPO last year. It's moving aggressively into subprime car loans with its new GM Financial arm, and it's on the verge of seeing the U.S. Treasury exit its remaining equity stake in the company.
The government will in all likelihood be selling at a loss. Obviously, GM doesn't entirely care at this juncture. It's starting to act like a really big car company again -- and the timing couldn't be better, as its Japanese rivals are struggling mightily to overcome the massive supply chain disruption brought on by the magnitude 9.0 quake and subsequent tsunami. Wall Street doesn't know how to react to this. But GM does.
What also impressive about GM's investment is that it's focused on North America (and, as my BNET colleague Jim Motavalli points out, at least in part on starting a sort of arms race in transmission tech). GM once owned half of this mature market, although its share has declined precipitously over the past few decades.
Rockin' in the U.S.A.
It would have easy to fight a holding action in the U.S., splitting 40% of the market with Toyota (TM) and trying to keep Ford (F), Honda, Nissan, Chrysler, Hyundai, and all the rest at bay. GM's China business is booming, but because it didn't sell Opel, its main European division, after Chapter 11, it has work to do to return operations on the continent and in the UK to profitability. Oh, and there's also South America to consider. An international management challenge, to say the least.
Not incidentally, China and South America represent major growth markets, while the U.S. is down significantly from its 2005 peak of 17 million vehicles sales per year (and it may never get back to those heights). So why isn't GM putting all of its chips in the developing world's game?
On the homefront offensive
Because it will probably never get another chance to bleed the Japanese like this again. I hate to put it so starkly, but with Toyota on track to see its U.S. market share drop to 15 percent, GM has to put the knife in and twist. This is good PR: the American taxpayer sees the company that it, ahem, still owns creating jobs in the midwest, a region that's been hammered by the Great Recession.
But it's also good business. Toyota (along with the other Japanese carmakers that are now suffering) is going to have to spend an enormous amount of money to grab back U.S. market share. All money that won't being going to developing better cars than Detroit has been selling, which is why Toyota threatened GM for North American dominance in the first place.
The Ford and Chrysler factors
Strategically, GM also recognizes that Ford and a resurgent Chrysler will make the Japanese work that much harder. Ford is now the number two U.S. automaker again, and Chrysler will be much more competitive once it fully integrates with new corporate master Fiat and launches an IPO. This will sap even more momentum from Toyota et al., once the crisis abates.
It would appear that somebody up there is looking out for GM. And to be sure, GM doesn't plan to waste the attention.
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